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Uganda's Debt: The Story Continues

This report is based on a short trip to Uganda in October 2002 during which meetings were held with civil society groups, central and local government officials, World Bank and Ireland Aid. The purpose was to get an insight into the major issues in relation to debt and poverty reduction from civil society's perspective and that of other players

Uganda was chosen for the visit as the country has been at the forefront of the debt issue since the mid l990's. Also Uganda has been a priority country for Ireland Aid since l994.

Debt campaigning is lead by Uganda Debt Network which has a membership of 100 including NGOs, institutions and individuals. UDN has been in action since l996 and lead the Jubilee campaign in Uganda.

Major priorities are:

• Cancellation of unpayable debt
  
  
• Accountability in how public spending is used, including the use of savings from debt reduction already received.

Part I looks at the current position on Uganda's debt. Part II looks at how the use of debt savings is being monitored.

Part I: Uganda's Debt

Uganda has been burdened with debt for 2 decades. The country was the first to receive debt reduction under each of the two rounds of the Heavily Indebted Country Initiative - in l998 and again in 2000. But in spite of this, Uganda has not yet escaped the debt crisis.

Uganda's Unpayable Debt

Using the Jubilee concept of 'unpayable' debt, Uganda's debt is certainly unpayable. It can only paid at the cost of the welfare of the people where

• Life expectancy is 42 years
  
  
• Infant mortality has increased between l995 and 2000 from 81 to 88 per 1,000 live births

On the positive side, Uganda's achievement in tackling HIV/Aids (cutting prevalence by 2/3 since l995), has been impressive. However resources are needed to maintain this progress. Research by Jubilee Research [1] confirmed that Uganda will need 100% cancellation if it is to have any chance of meeting the Millennium Development Goals set by the UN with a target date of 2015.

Civil society groups make the point that HIPC is failing to contribute adequately towards the achievement of the Millennium Development Goals.

Snapshot of Uganda's Debt [2]

Uganda's debt is complex with 50 creditors and 300 loans which were taken on at different interest rates - ranging from low rates of 0-3% and rising to 10%. Almost half of it arose from borrowing for economic reform e.g. IMF and World Bank structural adjustment programmes.

Uganda's debt may appear tiny when compared to Ireland's. With a population of 22 million Uganda owes $3.4bn while Ireland with a population of just under 4 million owes $38.4bn, eleven times as much. It is not the size of the debt, however, but the ability to pay which is important. While Uganda is in 150th place on the Human Development Index produced annually by the United Nation Development Programme, Ireland comes 18th.

Uganda's 'Unsustainable' Debt

While debt campaigners look at the debt burden in terms of its human impact, the IMF and World Bank use the ratio of debt to its exports. If this ratio is above 150%, they judge the debt to be unsustainable and therefore reduction is needed. A sustainable debt is one which can be repaid on time and without negative impact on economic growth. The latest analysis of Uganda's debt shows that the ratio has now shot up to 171%. The reasons given for this by the IMF and World Bank are:

• Coffee prices dropped by 53% between 1998-01. The IMF and World Bank had projected only a 1% price drop. Coffee forms over half of Uganda's exports
  
  
• The level of new borrowing was higher than anticipated. [3]

At the moment the IMF and World Bank do not appear to be planning any further debt reduction for Uganda. While setting a myriad of conditions which indebted countries must meet in order to receive debt reduction, the IMF and World Bank do not feel bound to meet the standards set for themselves. They argue that 150% debt to export ratio allows for generous reduction and therefore doesn't really have to be met. [4] A World Bank representative in Uganda argued that if other indicators were used to assess its debt, the situation in Uganda looks okay. He admitted that mistakes were made in how Uganda's debt was analysed e.g. the over optimistic export projections on coffee and other relevant factors weren't taken into account. All of this was outside the Ugandan government's control. The World Bank argues that debt to export ratios will improve slowly and Uganda will eventually reach the 150%. However, the G8 at their 2002 meeting in Canada committed to provide additional debt reduction to countries which suffered from severe external shocks such as Uganda's plummetting coffee prices. But there are no signs that Uganda is in line for further cancellation.

As they are providing loans of $150 m a year to support the Ugandan budget, the World Bank sees no need for further debt reduction. Civil society groups, however, ask what assurances have they that these loans will contribute to poverty reduction? They point to a civil society study [5] which showed that the World Bank policies conflict with the goals set in Uganda's poverty eradication plan. For example no consideration was given to how price increases for privatised water, a requirement of the World Bank, will undermine the health goals of Uganda's poverty plan. Civil society groups are calling for these loans and the conditions attached to them to be made public and their likely impact on poverty reduction to be debated openly. The Irish government has also expressed unease about the World Bank's programme, stating that it must be 'strictly monitored' to ensure it doesn't mount as unpayable debt [6]. No proposal was made by the Irish government, however, as to how this monitoring is to be carried out, or what role Ireland will play in this.

Accountability for new borrowing

Given the suffering caused by Uganda's two decade old debt crisis, civil society groups want to avoid a repeat. They are extremely concerned about the quality of new borrowing and that it should be closely monitored. They ask in relation to new lending: do we need this loan, who will benefit, will the borrowing lead to poverty reduction? They make the point that while the legal framework in Uganda is good, parliament is weak. Taking out loans is the preserve of the Ministry for Finance. Loans are submitted in a hurry and MPs are under pressure to make quick decisions under threat that the loan could be lost. There is a huge imbalance of power between the executive and parliament. There was also some suggestion that World Bank sees Parliament as a bottleneck, a hindrance to getting loans through fast. Is democracy seen as a barrier to efficiency, a restrictive practice?

Government perspective

Government officials in Uganda expressed appreciation for the debt cancellation received under HIPC and stated that this has contributed towards their poverty eradication plan. They point out, however, that there is no mechanism to ensure that all creditors cancel debt as agreed. Given that Uganda's creditors range from major financial institutions like the World Bank to individual countries like Kuwait and Iraq, this is causing a major headache to Uganda. A number of creditors have refused to reduce Uganda's debt arguing that they are not obliged to participate in HIPC. Uganda is not servicing these debts and some of these countries have threatened to sue for the unpaid debts e.g Iraq and Yugoslavia. Some commercial creditors have also sued Uganda. This is becoming a serious problem for the country even though the sums owed to these may be small. Uganda entered HIPC in good faith, complied with all the conditions and is now facing court action. The G8 in Canada asked the IMF and World Bank to investigate how countries facing court action could be supported. However, Uganda and other HIPC countries which are facing the same problems, say that they are not receiving much support from the IMF and World Bank in relation to the court cases. Uganda also owes some debt to neighbouring countries e.g. Burundi and Tanzania. Both of these are also Highly Indebted Poor Countries. HIPC Finance Ministers are calling for a process to deal with debt owed by low income heavily indebted countries to each other.

Part 2: Has Uganda benefitted from the debt reduction received?

What Happens to Uganda's Debt Savings?

Savings from the debt reduction already received by Uganda are placed in the Poverty Action Fund (PAF) which was set up by the government in 1997. PAF also receives contributions from donors - including Ireland - and government resources. PAF resources are ring fenced i.e. they can't be cut and were excluded from a recent Ugandan government proposal to cut the budget by 23% to fund military action against the LRA in the North of Uganda. PAF's aims are to
" increase the incomes of poor people
" improve the quality of life for the poor.

PAF's priority areas are:

• Primary education and primary health
  
  
• Water and sanitation
  
  
• Rural feeder roads maintenance
  
  
• Agricultural extension
  
  
• Micro finance and restocking

PAF resources have more than doubled - from 16% of the budget to 31% between 1997 and 2000. Most of the PAF money is channelled to districts and sub counties which have to produce poverty eradication plans through a participatory process. Resources are distributed to Districts mainly in the form of 'conditional' grants i.e money must be spent on the areas specified.

Monitoring and accountability are built into PAF with 5% of resources dedicated to this end. PAF monitoring meetings are attended by attended by government ministries, donors and civil society representatives. Government presents a report on PAF expenditure. Donors provided their assessment. Civil society groups monitoring the use of PAF money also presented the outcome of their monitoring. PAF resources are very important because local revenue collection is very low and central government provides 80% of district funds, most of it via PAF.

Monitoring the use of debt savings and other social spending
A major priority for UDN has been to ensure that the use of PAF monies are monitored to see to what extent local people are benefitting. To do this they support local PAF Monitoring committees made up of local volunteers which have been established in 18 districts. In order to deepen community involvement and empowerment, a new strategy is being introduced - community based monitoring and evaluation which aims to bring monitoring down to a more grass roots level.

Monitoring groups highlighted two key requirements for successful monitoring:

a) Access to information including how much money the District is receiving and for what;

b) Civic education so that local people know their rights and are willing to take on the job of monitoring. People are then trained in how to carry out participatory monitoring and also in lobbying and advocacy.

As regards access to information, Districts are obliged to display publicly how much money they are receiving and how it will be used. This includes use of the media to disseminate this information. Schools and clinics must also display how much they are receiving and how it will be used. In terms of civic education local media has proved useful. Kamuli PAF have a live phone in programme on local radio which raises people's awareness of the need to monitor how public money is being spent. The emphasis is put on the fact that the people are the intended beneficiaries, they are (or should be) the owners of the services. 'If a school is built, does it belong to the community or to the government?'.

Districts are divided into counties, sub counties, parishes and villages. The aim of the PAF monitoring committees is to see how much money gets out to the parishes and villages. The approach is bottom up with networks of people reporting from village, parish and sub county level. Detailed reports are produced on e.g. the quality of newly constructed classrooms, on the length of queues for water, on attendance by teachers at school, on the availability of drugs in clinics and the agricultural extension service. 'If we hear of millions of shillings being squandered at local level, how can we take seriously billions being squandered nationally' to quote a member of one Monitoring Committee.

The rationale for getting involved in monitoring given by one member was: ' We know the government is investing in health and education but we have very little information at the grass roots. We don't see enough results from this public investment. Social well being is getting worse'. They also hear the debt is increasing which also causes concern. The official figures showing poverty levels have decreased substantially i.e. from 56% to 35% between l992 and 2000 are met with scepticism locally.

The reports which highlight progress as well as problems are then discussed in meetings with local authority officials and politicians responsible for implementing the PAF programmes. Empowering local communities to participate in these meetings and engage with officials and politicians has been an important dimension of the monitoring activities.

Local Monitoring Committees report some improvements in services. The Kamuli District PAF Monitoring Committee highlight that the District has been one of the leaders in road maintenance with improvements to feeder roads. This is both saving lives - particular mention was made of it enabling pregnant women in crisis to get to medical centres - and also it has helped agricultural marketting and opened up job opportunities. There have been some improvements in access to clean water but it can still take 6-8 hours to collect water. Women were benefitting through increased access to credit, targetted health programes and adult literacy programme. Food production increased and there was an increase in the numbers attending health units following the abolition of user fees. However, medicines available were totally inadequate to meet the demand resulting from the increased attendance.

Universal primary education (UPE)was highlighted as a great success by all groups visited but it was also acknowledged that there are enormous problems. The increase in school attendance has been impressive. In Rakai district enrollment doubled from 69,123 in l996 to 138,247 in 2002 [7] The point was made that it is now difficult to find girls to employ in childcare and in fact there has been a big drop on the availability of child labour in general. A number of people felt that UPE had been conceived within a political framework to the neglect of the economic and development aspects. There were particular concerns for the quality of education. UPE has put huge strain on infrastructure with the need for classrooms and latrines to be constructed at high speed. Some of these constructions have been of such poor quality that they collapsed some time after being built. There was also concern that the shortage of trained teachers and falling grades might result in parents who can afford it to send their children to private schools. Some women's groups expressed the fear that this could increase gender inequality; that some parents might send their girls to UPE schools but send their boys to better resourced private schools. In spite of this a frequent comment was 'at least they are in school, they are learning to read and write'.

The question: what next is also worrying everyone as the first batch from UPE are coming to the end of their primary education. How many of these will find places in secondary school? An interesting and significant point made was that this has important consequences for democracy in Uganda as parliamentary candidates must have secondary education. This requirement excludes the majority of people from standing for parliament.

Those involved in monitoring say it isn't enough to know how much money is coming in, they want to know the conditions attached to the money. They also want information earlier. They don't want to be 'carrying out post mortems after events'. There was also a feeling that local government reports on progress were overly positive as they focussed almost exclusively on quantitative measures. Therefore the number of extra classrooms are given but not the number which may have collapsed or which are sub standard.

While the committees saw some results, they also highlighted the continuing problem of corruption. The point was made that when services were decentralised, corruption was also decentralised. Politicians take the lead in identifying where projects will be implemented using PAF resources and they may award the tenders to themselves or to relatives. Monitoring groups want 'the same song' to be heard in all departments, in all districts on corruption so that the realisation that they are under surveillance will deter offenders.

Campaigning against corruption

In addition to promoting and training local monitoring groups, the UDN took the lead in setting up the Anti corruption Coalition Uganda in l999. Grass roots campaigning was launched during 2000 at district level. The PAF Monitoring committees link into the campaign against corruption e.g. the Busoga Anti Corruption Committee is made up of 4 District monitoring committees. The arts have been used very effectively in raising awareness of the need to fight corruption with local groups using drama, song and poetry. Where the dramas have been serialised on local radio, a wide audience has been reached. The walls surrounding UDN's offices carry an anti corruption mural which highlights the causes and consequences of corruption and the need for public action. The theme was developed by teachers and pupils from local schools together with artists. The launch of the mural was attended by a government minister, church leaders, ambassadors and civil society representative.

Local government perspective

Local government officials expressed appreciation for the debt reduction received as the districts are direct beneficiaries. There has been a noticeable increase in resources from government since l998 because of PAF. Before funds are released to Districts a quarterly work plan and budget must be submitted and an end of quarter report back with a new work plan and budget for the next quarter is required. There is concern about the sustainability of progress made. In Rakai District local officials pointed out that although they have halved the number of pupils to classroom and increased the availability of text books, there is an issue of how to sustain these improvements e.g. maintaining roads, replacing books, especially while still repaying debt. The involvement of local people in local planning has also raised expectations. There was also a perception that while decentralisation has passed responsibility for service delivery to local level, most of the technical assistance and resources for capacity building goes to central government. As in the case of civil society representatives, local officials did not see the decreasing levels of poverty shown in the national figures. Officials also felt that most of the progress so far under PAF has been in terms of improving the lives of poor people e.g. through better access to education and some health services but little progress in improving people's livelihoods. This is because there is insufficient focus on increasing production and incomes.

Conclusion

The case of Uganda shows that even when a country fulfills the conditions demanded of it, the international community cannot be relied on to fulfill its side of the bargain and cancel unpayable debt. This highlights the need to strengthen the international campaign for debt cancellation. This will continue to be a major priority for Debt and Development Coalition Ireland.

The Irish government's debt policy states that debt cancellation must be accompanied by strong monitoring to ensure that debt savings are used for social spending. This point is echoed by other rich country governments and the IMF and World Bank. It is important to recognise that it's people in Uganda who feel passionately that the benefits of debt savings, and in fact all resources, should contribute to poverty eradication. This is clearly demonstrated by the number involved at national and local level monitoring public money and fighting corruption

December 2002

(For on going information on Uganda's debt see the Uganda Debt Network website: www.udn.or.ug)

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